Pune raises Rs 200 crore in first municipal bond issue in 14 years

Proceeds from the issue, raised at a coupon of 7.59 per cent and oversubscribed six times, will be used for a Rs 2,300-crore water project.

Pune Municipal Corporation (PMC) has become the first local body in the country to issue municipal bonds in nearly one and a half decade, raising Rs 200 crore for the smart city project, the central government’s pet scheme.

The issue, handled by SBI Capital Market, was oversubscribed six times, having received subscribtions worth Rs 1,200 crore. The bonds, rated AA+, one of the top ratings, offers 7.59%, about 30-40 basis points more than bonds sold by state governments.

“We have shown resolution and financial strength,” said PMC commissioner Kunal Kumar. “We have chalked out a 30-year plan to increase our tariffs, a source for revenue. We have also obtained political support for the plan,” he said. “This successful fund-raising should encourage other local bodies also to hit the markets soon.”

PMC proposes to increase water tax to raise revenue.

For the bond-sale, the municipal body even consulted the treasury department in the US, where such bonds, known as “muni bonds”, have a strong market.

Kunal Kumar, the civic commissioner, said the municipal body will be preparing a case study based on its experience and sharing it with other urban bodies to help them raise money from the bond markets which is being increasingly pushed by policymakers now.

The body was rated 'AA+' by credit rating agencies due to its strong finances. Kumar said it has been able to increase property tax collections by 50 per cent in the last two years, with over 50 per cent of the payments happening online at present.

The corporation has also set out on a water tarriff hikes programme, he said, conceding that it will take up to seven years for the water charges to cover the repayments.

The bonds will be listed on BSE and there will be a listing ceremony at the bourse on Thursday.

The scheme aims to provide water across the clock for all the citizens of Maharashtra's second biggest city. Rs 300 crore will be invested for a reservoir, Rs 700 crore for putting meters and Rs 1,800 crore for getting the distribution network.